Home loan affordability worsens by most in 12 years

Home loan affordability worsens by most in 12 years
as interest rates and house prices rise

Home loan affordability worsened across most of New
Zealand in March at the fastest rate since January 2002 as
median house prices rose and interest rates started rising,
the Roost Home Loan Affordability reports show.

A 6%
rise in the national median house price in March from
February drove most of the deterioration. The Reserve Bank's
decision to raise the Official Cash Rate by 0.25% on March
13 drove the rest of the increase in borrowing costs
measured in the reports.

Banks passed on the increase in
full to floating mortgage borrowers and average fixed
mortgage rates have risen around 0.7% in the last eight
months in anticipation of the Reserve Bank's tightening.
The Reserve Bank's imposition of a speed limit on low
deposit mortgages in October has also cooled activity and
prices in the housing market in recent months, although
medians continued to rise.

However, banks are increasing
their appetites to lend to both high and low deposit
borrowers and brokers report banks are returning to the
market in droves now they have adjusted to the Reserve
Bank's speed limit.

"The banks are back out looking for
high LVR borrowers and are doing deals for those borrowers
who are well organized and argue their case well through a
broker," said Roost Home Loans spokeswoman Colleen
Dennehy.

The Roost Home Loan Affordability
reports show national affordability worsened to
63.3% in March from 58.8% in February after the national
median house price rose to NZ$440,000 from NZ$415,000 in
February. This was the biggest increase in the borrowing
costs percentage since January 2002.

Average floating
mortgage rates rose the full 25 basis points to 6.01% in
March and the average advertised 2 year mortgage rate rose
to 6.13% from 5.96% at the end of February. It is up from
5.4% in May last year.

The Roost Home Loan
Affordability reports for March showed affordability for
regular home buyers worsened in 19 cities, including all of
Auckland, the Waikato/Bay of Plenty, and all of the South
Island except Invercargill. Affordability only improved in
Rotorua, Napier, Gisborne and Wellington City because of
lower median house prices.

It was toughest for first home
buyers on the North Shore of Auckland, which kept the title
of the least affordable city. It took 109.1% of a single
median after tax income to afford a first quartile priced
house on the North Shore in March, up from 103.4% in
February.

Fixed mortgage rates, which more than 50% of new
borrowers now use, have risen around 40 basis points since
mid December and rose again through March. The Reserve Bank
is forecasting it will raise rates by 2.5% or 250 basis
points by early 2017, although aggressive discounting by
banks in early April may soften some of that blow for
borrowers.

Housing affordability has become a major
economic and political issue over the last year. The Reserve
Bank and Government agreed on a toolkit of
'macro-prudential' controls a year ago that would see the
central bank impose limits growth in high LVR mortgages and
force banks to hold more capital. Central and local
governments are also moving to address housing supply
shortages. The Reserve Bank's speed limit was applied on
October 1 and it said in its March quarter Monetary Policy
Statement it appeared to have worked to reduce house price
inflation by around 2.5 percentage points.

For first home buyers – which in this Roost index are
defined as a 25-29 year old who buys a first quartile home
– there was an worsening in affordability in 15 of the 24
regions covered.

It took 52.0% of a single first home
buyer's income to afford a first quartile priced house
nationally, up from 48.3% a month earlier. The most
affordable cities for first home buyers were Wanganui and
Invercargill, where it took 20.9% of a young person's
disposable income to afford a first quartile home. The least
affordable was the North Shore of Auckland at 109.1%.

Any
level over 40% is considered unaffordable, whereas any level
closer to 30% has coincided with increased buyer demand in
the past.

For working households, the situation is
similar, although bringing two incomes to the job of paying
for a mortgage makes life considerably easier. A household
with two incomes would typically have had to use 41.5% of
their after tax pay in March to service the mortgage on a
median priced house. This is up from 38.6% the previous
month.

On this basis, most smaller New Zealand cities have
a household affordability index below 40% for couples in the
30-34 age group. This household is assumed to have one 5
year old child.

For first-home buying households in the
25-29 age group (which are assumed to have no children),
affordability nationally worsened to 25.2% of after tax
income in households with two incomes required to service
the debt, up from 23.3% the previous month. The lower
quartile house price rose to NZ$295,000 from NZ$280,000 the
previous month.

Any level over 30% is considered
unaffordable in the longer term for such a household, while
any level closer to 20% is seen as attractive and coinciding
with strong demand.

First home buyer household
affordability is measured by calculating the proportion of
after tax pay needed by two young median income earners to
service an 80% home loan on a first quartile priced
house.

ALSO:

WorkSafe NZ has laid one charge against the Ministry of Social Development (MSD) in relation to the shooting at the MSD Ashburton office on 1 September 2014 in which two Work and Income staff were killed and another was injured. More>>

New Zealand First Leader Winston Peters has announced his intention to stand in the Northland by-election, citing his own links to the electorate and ongoing neglect of the region by central government. More>>

The Government has appointed 12 New Zealanders as members of the Flag Consideration Panel which will engage with the public about a possible new New Zealand flag, Deputy Prime Minister Bill English says. More>>

ALSO:

ALSO:

The first I knew of my mother’s charges was when I was called by a reporter yesterday. I spoke to Andrew and we agreed there is a conflict of interest at the present time which means I will temporarily stand aside from the Social Development portfolio. It’s the right thing to do… . More>>